Question

Moonscape has just completed an initial public offering. The firm sold 3 million shares at an offer price of $10 per share. The underwriting spread was $0.50 a share. The price of the stock closed at $15.00 per share at the end of the first day of trading. The firm incurred $300,000 in legal, administrative, and other costs. What were flotation costs as a fraction of funds raised

Answer 1

Answer:

Moonscape

The flotation costs as a fraction of funds raised is:

= 0.04

Explanation:

a) Data and Calculations:

Number of shares issued = 3,000,000 shares

Offer price per share = $10

Underwriting spread  per share = $0.50

Closing price at first day of trading = $15.00

Legal, administrative, and other costs = $300,000

Amount of funds raised from the issue = $45,000,000 (3,000,000 * $15)

Underwriting cost = $1,500,000 ($0.50 * 3,000,000)

Total flotation cost = $1,800,000 ($300,000 + $1,500,000)

Flotation costs as a fraction of funds raised = $1,500,000/$45,000,000

= 0.04

= 4%